Energy shortage

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The energy crisis across the world has taken a turn for worse, and is now set to impact nearly every corner of the global economy. Supply remains scarce and expensive, triggering knock-on effects throughout many industries that are already dealing with soaring inflation. The near-term outlook isn’t looking any better, as companies and consumers prepare for a coming recession without adequate energy sources to get them through the winter.

Natural gas: European benchmark Dutch TTF natural gas futures jumped as much as 35% to €290/MWhr on Monday after Russia said the key Nord Stream pipeline would remain shut beyond last week’s three-day maintenance halt. The Kremlin had originally insisted that the closure was due to a leak, but now says that supplies will be suspended until the “collective West” lifts sanctions (Moscow will also retaliate if the G7 imposes a price cap on Russian oil). EU energy ministers will gather for an emergency meeting in Brussels on Friday to discuss a coordinated response, with gas futures surging more than 280% YTD. More stimulus? Rationing? Price caps? Trading suspensions?

Crude oil: WTI futures climbed back towards $90 a barrel after OPEC+ recommended a 100K bbl/day production cut starting in October amid fears over demand and a global recession. The decision will have little effect on actual production, since the group’s output is already running well below target, but the psychological impact is clear. The small cut effectively reverses the 100K bbl/day increase that OPEC+ said it would add to the market after President Biden’s recent visit to Saudi Arabia.

The grid: California declared a power emergency on Monday and expects all-time record demand today, as a heatwave that has pushed temperatures past 110 degrees Fahrenheit threatens to stretch the state’s electricity system to its limit. Ukraine’s Zaporizhzhia, the largest nuclear plant in Europe, has also been fully disconnected from the electricity grid due to shelling from Russian forces. That’s not all. Plummeting water levels from drought and overuse are threatening many regions and countries, weighing on hydropower and nuclear power that needs water to cool reactors.